Taiwan Struggles With COVID-19 And Chip Shortages

By Iris Pang of ING Economics

Economic and Financial Analysis • Aug 23, 2021 at 6:57 AM EDT

Taiwanese industrial production growth slips as Covid-19 and chip shortages play their roles in the economy

Taiwanese industrial production growth slips as COVID-19 and chip shortages play their roles in the economy.

Concentrated African American technician wearing lab coat and conducting expertise of motherboard by using screwdrivers while working in service center

Disappointing industrial production growth

Taiwan's industrial production growth rate fell to 13.97% year-on-year in July from 18.37%YoY a month ago.

Integrated circuits - the heavyweight in industrial production manufacturing sub-index item, recorded 16.3%YoY growth after a contraction of 12.43%MoM.

We didn't expect the manufacturing of integrated circuits to fall on a monthly basis because chip shortages around the world mean that Taiwan's semiconductor factories should be running at full capacity. The unemployment rate that fell to 4.36% in July from 4.76% in June corroborates our view.

If we dig deeper, export orders of electronic items fell 2.7%MoM too. We believe that global 5G infrastructure development could have slowed down due to the spread of the Delta variant that has affected many workers globally.

We expect GDP growth to fall in 2H21 to 2.4%YoY compared to 1H21's 8.35%, and therefore a full-year forecast of 5.4%.

That is because of the large base effects and COVID-19. The Delta variant is affecting the world, and it is uncertain how it will affect demand for electronic goods and the development of 5G infrastructure, which would directly affect Taiwan's semiconductor chip production and exports.

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